Considering the level of complexities associated with availing bank loans, more and more business entities are looking to opt for invoice discounting or invoice factoring as a financing alternative. As an exceptional substitute of conventional bank loans, invoice factoring serves as a dependable source of working capital for several large and small business firms. While the steady flow of cash is one of the prominent reasons that make receivables financing a convenient choice, the following are the other important aspects that make this alternative funding option better than typical bank loans.
- Quick and Expedient
Banks have stringent obligations and the associated maze of paper works often make the loan approval process complex and time consuming. It is important to note that the approval time ranges from one to four weeks and in certain circumstances the loan request might not even get granted making the situations worst. This is where invoice factoring creates the difference. In case of this procedure the approved funds are released immediately, thereby providing a quick upsurge in the cash flow. Compared to the small business loans, invoice factoring delivers the business with the much needed capital within a short time span, provided that the company fulfills certain simple norms like error free loan history, approved invoice receipts and clean credit score.
- Enhanced Cash Flow
Unlike the bank loans, invoice factoring offers a foreseeable and trusted source of cash flow that proves to be highly beneficial for the business. Financing of the unpaid invoices actually creates greater cash liquidity which eventually allows the business to cover up their additional expenses on a timely basis. On the other hand, the businesses can utilize the extra working capital to grasp further opportunities that might help the business flourish further, on terms of growth and profit.
- No Limitations and Log Term Debts
With invoice factoring there is no risk of debt creation and this is one of the most important factors that make this alternative funding method better than bank loans. Owing to the fact that the businesses leverage on the collection of capital against approved yet unpaid invoice, there is no extra burden of repaying loans. With reduced accounts receivable balance and enhance cash flow, the businesses can enjoy limitless funding based on the pending invoices. However, things are not similar with bank loans. Banks have specific limits up to which one can borrow and once this limit has been reached, businesses need to re-apply for additional funding. Comparably invoice factoring is directly associated with the specific sales volume of the business.
Apart from these three distinctive aspects, cost effectiveness and nominal risk involvement are the vital traits that make invoice factoring a better option than small business loans and funding. Business entities looking to opt for this alternative funding scheme should consider opting for a reputable organization because this enhances the chances of a faster and convenient transaction.